There is something dangerously comforting about sticking with a decision, even when it no longer makes sense. The time, money, or effort already invested creates a sense of obligation to see it through. That feeling of obligation often gets dressed up as perseverance or discipline. In reality, it is the sunk cost fallacy.
The Illusion of Progress
The sunk cost fallacy shows up when past investment distorts present judgment. A company spends months building a product feature that customers did not ask for and will never use. A leadership team continues pushing a marketing strategy that peaked two years ago. An executive hesitates to cancel an initiative because the company has already spent too much on it to walk away.
The rationale sounds responsible: “We need to finish what we started.” “We have come too far to stop now.” “Maybe it will turn around next quarter.” But none of those statements ask the only question that matters: Does continuing create future value?
Past costs, no matter how large, are irrelevant to future decisions. What matters is opportunity cost. What could be accomplished with that same energy, capital, or time if it were redirected?
Why It Happens
The sunk cost fallacy is not simply about money. It is about identity, reputation, and the fear of being seen as inconsistent. Most organizations reward commitment, not clarity. Leaders are trained to defend budgets, protect their teams, and keep promises. Changing course can feel like failure, even when it is the right call.
It becomes even harder to reverse course when:
- Outcomes are tied to individual careers or personal credibility
- Projects lack clear exit criteria or review milestones
- Budget conversations focus on historical spending instead of forward-looking ROI
- Decision-makers are emotionally attached to the original vision
The Cost of Avoiding Hard Calls
When sunk cost thinking drives strategy, the costs compound. Capital gets trapped in low-return projects. High-performing teams get reassigned to struggling initiatives instead of growth opportunities. Morale erodes as people sense the disconnect between effort and impact. And the organization falls further behind because no one wants to acknowledge that a decision made in good faith no longer serves its purpose.
Many of the worst strategic decisions are not reckless. They are simply outdated, held in place by inertia and the unwillingness to let go.
Building Smarter Exit Ramps
Avoiding the sunk cost trap requires structure, not just awareness. Successful companies create decision frameworks that make it easier to change course before too much has been lost. A few effective tactics:
Define exit criteria upfront. Before launching a project, outline the conditions under which it should be stopped. This removes ambiguity when results fall short.
Use milestone-based funding. Break large initiatives into phases. Tie continued investment to progress, not to a belief in eventual success.
Involve fresh eyes. Bring in an outside advisor, board member, or peer executive to review key decisions. It is easier to question assumptions when someone is not attached to them.
Reframe course correction. Do not talk about pulling the plug. Talk about reallocating resources to higher-return opportunities. Removing emotion from the conversation clears the way for better thinking.
Letting Go Is Strategic
Discipline is not about finishing everything you start. It is about making the best decision with the information you have today. That means being willing to acknowledge when a plan is no longer the right one.
Good operators cut losses quickly. Great ones do it without drama. They understand that the goal is not to prove the original decision was right. The goal is to get the business where it needs to go.
The next time a team defends a failing project with, “We have already spent so much,” the best answer may be the simplest one: “Then let’s not spend any more.” Or reach out.